U.S. Markets open in 7 hrs 56 mins

UK economy shrinks by 0.4% in April, in biggest fall since 2016

Edmund Heaphy
Finance and news reporter
Canary Wharf in London, the home of some of the UK's biggest banks. Photo: Matt Crossick/PA Images via Getty Images

The UK economy shrank by 0.4% in April in its biggest contraction since March 2016, according to new data from the Office for National Statistics (ONS).

The ONS pointed to contractions in both the production sector and manufacturing sub-sector — including a “dramatic fall” in car production — as reasons for the month-on-month fall-off.

Economists had predicted a much more modest 0.1% decline. The pound fell 0.36%, to well below $1.27 (GBPUSD=X), following the release of the figures.

Rolling three-month growth in April was also weak, at just 0.3% — compared to 0.5% in the previous month.

At 1.2%, growth in the manufacturing sector in the three months to April was weaker than expected, and significantly below the 2.2% seen in the first quarter, which benefitted from an intense period of Brexit-related stockpiling.

Compared to March, manufacturing slumped by 4%, the worst monthly decline since June 2002.

Gross Domestic Product: Quarter on Quarter growth. Chart: ONS

The ONS highlighted the big reduction in car manufacturing, with transport production sinking by 13% compared to March.

Industry data for the month of April had already shown that the number of vehicles rolling off production lines had plummeted by almost 45% in April compared to the same month in 2018.

“GDP growth showed some weakening across the latest three months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK’s original EU departure date leading to planned shutdowns,” according to Rob Kent-Smith of the ONS.

Month-on-month growth in the services sector was flat, with significant growth in the information and communication sub-sectors offset by a contraction in professional, scientific, and technical activities, the ONS said.

Ian Stewart, chief economist at Deloitte, said the figures were the result of a “lacklustre backdrop for investment and manufacturing.”

“UK growth over the rest of this year is likely to be heavily dependent on the consumer,” Stewart said.

READ MORE: London now has more tech unicorns than San Francisco